LONDON (Reuters) - British lawmakers are pressing the accounting regulator to divulge details of the misconduct that prompted it to slap unprecedented fines on accountants PwC and a former senior partner over a 2014 audit of now-collapsed retail chain BHS.
The Financial Reporting Council (FRC) overnight fined PricewaterhouseCoopers, one of Britain’s Big Four accounting firms, a record 6.5 million pounds ($9 million) and former partner Steve Denison 325,000 pounds over the audit.
PwC’s 2014 audit of BHS signed off the company as a “going concern” days before billionaire retailer Philip Green sold the loss-making group for a token one pound to a serial bankrupt. BHS’s collapse in April 2016 threw 11,000 people out of work and permanently reduced the pensions of 20,000 people.
Frank Field, the chairman of the parliamentary work and pensions committee, said on Wednesday he had asked the FRC whether further investigations into other BHS audits and wider and stronger sanctions were needed.
“On the basis of their reply, the select committee may request the right to appeal to the FRC to significantly increase the fines ...,” Field said in a statement.
Although the FRC said PwC and Denison admitted misconduct, it has not given further details. It did not have an immediate comment on Field’s letter.
Denison, a 30-year plus PwC veteran who left the firm in the last few days, has agreed to be barred from audit work for 15 years. A spokesman said he remains a member of the Institute of Chartered Accountants in England and Wales (ICAEW) professional body.
In an open letter to FRC Chief Executive Stephen Haddrill, Field asked why the FRC had not published a report on its findings, whether it had shared conclusions with other regulators, whether it planned to investigate previous PwC audits of BHS and how it had managed any conflicts of interest.
The FRC ordered PwC to supply detailed annual reports about its audit practice in Leeds, northern England, for three years and to review and amend broader policies to ensure audits of all unlisted, high-risk or high-profile companies get a quality control review.
PwC has apologized for its work falling well below the professional standards expected. “We recognize and accept that there were serious shortcomings with this audit work and that it is important to learn the necessary lessons,” it said.
Denison said he regretted the mistakes that led to the FRC’s decision.
Andrew Oury, a partner at law firm and accountants Oury Clark, said the FRC’s tough stance could make audit partners wary of taking on large, complex audits.
“In short, audits just became much more expensive and fewer people will wish to do them,” he said.
Michael Potts, a partner at law firm Byrne and Partners, said the FRC’s decision “finally shows some teeth”.
“I think auditors will be concerned that their entire career could be at risk and may cause much more protective audits (adding caveats to avoid later liability) in the future,” he said.
The FRC has long been criticized by lawmakers for being too slow, too close to auditors and too cautious in dealing with accounting scandals.
Having been dubbed “toothless” by lawmakers, its effectiveness and potential role in preventing corporate failure is now under scrutiny.
John Kingman, a top finance ministry official who oversaw Britain’s bank bailout during the financial crisis and is chairman of insurer Legal & General (LGEN.L), is leading the investigation, backed by a string of business grandees.
The FRC has welcomed the independent review.
Additional reporting Kanishka Singh in Bengaluru, Sinead Cruise and James Davey in London; editing by Mark Heinrich and Elaine Hardcastle